Superannuation might not be everyone’s ‘go to’ topic of conversation, and for many Australians it can present a bit of a financial enigma that lies quietly in the back of our minds! However, super is important and it does warrant thinking about sometimes, even just for a brief while, so you’re not caught out and can be much more prepared later in life.
As you’re likely to hear from every finance-related person on the planet (and your parents, and maybe your boss if you’re lucky), the earlier you understand your super and plan for your retirement, the more comfortable your future becomes.
However, it can feel hard to cut through the jargon and figure out exactly what’s important and what relates to you. We’re here to help.
The State Of Superannuation And Lost Super
Way back in 1991, the Australian Government introduced the compulsory superannuation system that meant employers had to pay a specific percentage of a salary into a super fund of the employees choice. Things have changed a bit as back then the rate was 3%. It’s now 9.5% and will be 12% by 2025. Good news!
How does Australia’s super system fare in comparison with the rest of the developed world? More good news, as it’s not doing too badly. As of today, it is the fourth largest in the world, with $2.1 trillion in assets at the end of Q3 2017.
You know that feeling when you put something down, then a short time later you look around for it, and it’s nowhere to be seen? But you know it’s out there somewhere? It’s kind of the same with your super. Some of it could be out there, completely lost.
Think for a moment: do you know where all of your super is?
Lost super refers to the super balances below $4,000 that have been sent to the ATO due to a superannuation fund no longer being able to contact you and the account has had no activity. Or maybe you changed your number and forgot to update your details - oops. We’ve all been there.
Among the common causes of lost super are switching jobs without either notifying your super fund or setting up a new super fund with a new employer instead of using the same one. At the time your super meets all of this criteria is required to be handed over to the ATO into the pool of “Lost Super”. Kind of like a big pool of lost property.
If you started work early in the retail or hospitality industries, then this is probably a pretty relatable scenario.
Ding, ding! If that did ring a bell, it may give you some comfort to learn that you’re definitely not alone. As of June 30th 2017, there was an astonishing $18 billion in lost super. Yep, that’s a ‘b’ followed by an ‘illion’ in money just sitting there waiting to be claimed.
That’s some pretty impressive numbers, but do you know what your super balance is right now? Do you know how many active super funds you have? What do you pay in fees? What are your investment options? What happens when you have a baby?
Hey, who invited the Spanish Inquisition? We’ll stop asking questions, but you see our point.
Tips For Taking Care Of Your Super
Consolidate Your Accounts
Don’t worry, it’s never too late to improve your super, and even a small amount of energy and action can make a big difference.
If you do have multiple superannuation accounts those funds are likely to be slowly drained by fees associated with maintaining the unused accounts and potentially insurance premiums for default insurance. Not ideal.
In order to not dwindle those hard earned dollars, you should consider consolidating your accounts. This is the process of finding every and all super you’ve ever had through and bringing them all together into the one account.
Not only are you likely to increase your super balance substantially by doing so, you’ll be saving hundreds (or potentially thousands) of dollars until retirement by only paying one set of fees and insurance premiums, instead of several.
1. Planning For the Future and Children
So this is the really important stuff.
If you’re planning to have a baby in the future, then there are some things you can do to protect super balances, particularly in dual income households.
- Spousal Contributions - Over 90 percent of full time caregivers are women, and due to this they are disproportionately affected by the loss of employment, and therefore their super contributions
- Spouses can make voluntary contributions to your super balance while you’re working full-time with the kids. This ensures that their future isn’t unfairly disadvantaged while they’re away from work
- Voluntary Contributions - If financially possible, making voluntary contributions to your super is an excellent way to increase your balance, and the subsequent interest applied, for a more comfortable retirement
- Explore Virgin Money Super’s Baby Break - Virgin Money Super offers the ‘baby break’ which reduces fees for a period of up to 12 months surrounding the birth of your child. This minimises the losses from employer contributions and provides some more financial stability during such an exciting time!
- Check your insurance - ensure you have the right level of cover either inside or outside of your super to provide protection should the unexpected happen
2. The Gender Super Gap
It’s no secret and it is regularly commentated on that women earn less than men. But did you know that women are paid a base salary average of 15.3% less than men (July 2018) for comparable roles across all occupations and industries?
This startling reduction in pay reduces the amount of employer-paid super along with reducing the possibility to be able to make voluntary contributions. In addition, and as we explored above, with women as the primary caregivers, they are far more likely to take extended leave from employment - ceasing their super payments entirely.
This is commonly known as the motherhood penalty and it equates to an average of $114,000 less in a women’s super balance at retirement age than a man’s, making it more likely for women to retire into poverty.
So, if the mother is to take care of the children, then the spouse should consider the spousal contributions mentioned above, and if the pregnancy is planned then consider voluntary contributions on the lead up to try and balance out the upcoming losses to income.
There are definitely organisations that offer superannuation during maternity leave, and it’s worth the investigation.
Another not so popular go-to financial topic is what happens in the event of your death or total and permanent disability.
Primarily, you want to be confident that have insurance to cover a sudden loss of income. It is important that you understand your insurance needs and what is right for your personal situation.
Some super funds offer automatic levels of insurance as a part of your super (as well as the option to tailor your cover), and others do not. When looking at your super consider your insurance needs and what the appropriate level of cover might be for you, and if you are better off having this cover inside or outside of your super.
Doing this will require a little maths, but it’s a good sum to work out the answer for. And once it’s done, it’s done! You can move onto lighter subjects.
4. Investment Options
Investments are interesting to consider but require a little industry know-how. But you don’t have to be a stock exchange regular to get involved.
How does it work? Well, as well as your contributions and performance of your investments, your super fund will invest your money with the goal of increasing your retirement balance. In many cases, you’re able to control these investment options, and they are most commonly graded by risk; growth, balanced, and conservative.
Discussing the options with your super fund can be a valuable step in growing your post-retirement wealth - so it’s definitely worth at least a conversation.
5. Virgin Money Super
We’re here to help you every step of the way.
Virgin Money Super offer a significant range of benefits to you and your family. With one of the lowest fees in the industry, including an exclusive ‘baby break’ option, transparency and control over your investment options, and an easy way to consolidate and control your super, we can be a strong partner in your life.
Explore how you can take greater control of your super superannuation with Virgin Money and get in touch to have conversation about your future without the finance jargon!
This information is of a general nature only and does not take into account your personal financial situation, needs or objectives. Please consider your own personal financial circumstances and consider the Product Disclosure Statement, Product Guide, Insurance Guide and Financial Services Guide before taking any action in relation to your superannuation, making a contribution, or asking your employer to contribute to Virgin Money Super for you. You should consider the suitability of superannuation and Virgin Money Super’s Product Disclosure Statement before making a decision on your superannuation investments, making a contribution, or asking your employer to contribute to Virgin Money Super for you. For further information about the insurance options refer to the Insurance Guide.
It is very important to note that superannuation is generally a long term investment. Past investment performance is not a reliable indicator of future performance and should never be the sole factor considered when selecting a fund.
Before you rollover or consolidate your superannuation, you should check to see if insurance or other benefits will be impacted or lost. Some funds may also charge withdrawal or exit fees. You should consider the relevant Product Disclosure Statement. Please note this information does not constitute personal financial product advice, and you may wish to consult your financial adviser before making a decision about whether Virgin Money Super fits your objectives, financial situation and needs. If you are considering making voluntary contributions into your Virgin Money Super account, you should consider your personal circumstances, the impact of such contributions to your contribution caps, as well as associated taxation issues before making any decision on making voluntary contributions. Concessional tax rates do not apply on contributions which exceed government contribution limits. See the ‘How Super is Taxed’ section of the Virgin Money Super Product Guide and the contribution fact sheet on our website for more information about contribution types and limits.
Prepared by Virgin Money Financial Services Pty Ltd ABN 51 113 285 395 AFSL 286869 (‘Virgin Money’). Virgin Money Super is a plan in the Mercer Super Trust ABN 19 905 422 981. Virgin Money Super is issued by Mercer Superannuation (Australia) Limited (MSAL) ABN 79 004 717 533 AFSL 235906 as trustee of the Mercer Super Trust. For more information about Virgin Money Super, please refer to the PDS which is available free of charge on our website or by calling the Customer Care team on 1300 652 770.